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Now that several major Canadian banks have announced that they are working with a little-known startup called CertaPay, Canadians may eventually get the chance to experience the next generation of online payment: e-mail money - something that U.S. residents have been using in increasing numbers for the past year or two. The banks, meanwhile (Canadian Imperial Bank of Commerce, Toronto-Dominion and Scotiabank), get a chance to try and head off any incursion by expanding U.S. players.

CertaPay's management not only has financial experience but also Internet-based finance experience. CEO Mike Ginsberg was one of the founders of Bayshore Trust, the first financial entity in Canada to offer online mortgage financing (sold to Trimark Financial in 1996) and a co-founder of iMoney, a financial Web site sold to Quebecor last year. CertaPay chairman Brad Badeau is the former CEO of Trimark Financial Management.

CertaPay is hoping that it can recreate in Canada the kind of success experienced by the popular U.S. e-mail payment system known as PayPal - although CertaPay wants to work with banks behind the scenes rather than becoming a standalone consumer brand like PayPal (which merged with a competitor called last year). In late 1999, PayPal took most of the U.S. banking industry by surprise when it launched its easy-to-use - and free - e-mail payment service. It was quickly adopted by buyers and sellers at eBay and, and says it now has more than six million customers.

At the moment, if you want to send money to a friend you would probably use a money order or a certified cheque, both of which would involve going into a bank branch - and requiring your friend to do so too. PayPal is like a virtual money order: you send an e-mail with an amount drawn on a bank account or credit card; if your friend is a PayPal member, the money goes into their account. If not, they can sign up on the spot or PayPal will send a cheque or apply the funds to their credit card.

If you have a Palm handheld or a Handspring Visor, or any wireless device that accepts e-mail, you can send or receive money. If you and a friend happen to both have Palms or Visors that feature an infrared "beaming" function, you can settle a bar tab or reimburse your colleague for lunch instantly. Eventually, retailers may accept this kind of e-mail payment the same way they now accept debit cards, and you could pay for things by simply pointing your Palm or Visor or digital phone at a cash register.

PayPal says it now accounts for over 10 per cent of all Internet traffic in the financial services category, more than Citibank, Wells Fargo and Bank of America combined. This kind of success has spawned many imitators, including BillPoint (which is now owned by eBay and promoted for use with most of its auctions), BidPay and Yahoo's PayDirect. Several banks have also tried to create their own, such as BankOne's eMoneyMail, and veteran Western Union recently launched its MoneyZap service.

Some of these are variations on the PayPal idea: BillPoint, for example, is designed specifically for credit cards - payments are deducted from a user's card, and then applied to the payee's card. One of the benefits of this kind of service is that the payment appears immediately, while a bank account payment can take several days to process, depending on the bank. (PayPal also does credit card to credit card payment.)

PayPal is now effectively a bank: It processes more than 150,000 transactions a day involving millions of dollars, and recently signed an agreement with U.S. financial group Providian Financial to issue a co-branded credit card, and will issue a co-branded debit card with MasterCard that will allow users to access their PayPal accounts through bank machines. PayPal encourages users to keep a balance of money in an online account - on which it pays interest - in order to make e-mail payments faster. Like a bank, PayPal then earns interest on all the money in its users' online accounts.

"Peer-to-peer" has become a buzzword of late, with the focus on digital music and video file swapping through services such as Napster and CuteMX. PayPal and similar services show that there is potentially even more opportunity for peer-to-peer money swapping via e-mail, a wave that CertaPay and its Canadian banking partners are hoping they can ride.

Mathew Ingram's previous columns

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